Context: The role of the International Finance Securities Center (IFSC) at Gujarat International Finance and Tech (GIFT) city is vital in overcoming trade finance challenges.
About GIFT City
GIFT City has two zones, one is “Domestic” and the other is “SEZ”.
- In the domestic zone, Domestic transactions denominated in Rupee can be undertaken.
- The SEZ zone (GIFT-SEZ) has been declared as “International Financial Services Centre (IFSC)”. GIFT-SEZ is the only place in India designated as IFSC. All transactions are in foreign currency.
GIFT SEZ is India’s first International Financial Services Centre (IFSC) set up under Special Economic Zones Act, 2005.
- An IFSC is a jurisdiction that provides financial services to non-residents and residents, to the extent permissible under the current regulations, in any currency except Indian Rupee.
- Units (entities) related to Banking, Insurance and Capital Markets are considered as IFSC units and hence Banks, Insurers and Capital Market related companies can set up their units in the IFSC (GIFT-SEZ).
Significance
- The IFSC in GIFT-City seeks to bring to the Indian shores, those financial services transactions that are currently carried outside India by overseas financial institutions to a centre which has been designated for all practical purposes as a location having the same ecosystem as their present offshore location (like London, Singapore etc.), which is physically on Indian soil.
- IFSC (GIFT-SEZ) is the only place in India which allows offshore transactions (i.e., it is treated as outside India transactions)
- IFSC is deemed to be a foreign territory and entities approved as IFSC units are treated as non-resident in India.
Limits of Transactions
- Therefore, RBI ODI (Overseas Direct Investment, which means investments outside India) Rules are applicable on investments in IFSC.
- Accordingly, Indian parties are allowed under Automatic route to make investment in IFSC entities and that shall be treated as ODI.
- Individual persons resident in India are allowed to invest up to USD 2,50,000 per financial year under the Liberalised Remittance Scheme (LRS) outside India or in IFSC.